Pound Mixed as UK Inflation Hits Double Digits

Pound (GBP) Undermined as Income Crunch Intensifies

The Pound (GBP) initially rose yesterday after hotter-than-expected UK inflation increased the likelihood of more aggressive interest rate rises from the Bank of England (BoE).

However, Sterling quickly turned south against its stronger peers as economic concerns rattled GBP investors. The UK is heading for a recession, and with inflation continuing to outpace official estimates, it could be more painful than feared.

Turning to today, UK economic data is thin on the ground. As a result, the Pound may trade on domestic UK news. Will ongoing industrial action add to concerns about social and political instability in the UK?

Euro (EUR) Firms despite Data Miss

The Euro (EUR) rose against most of its rivals yesterday, despite the latest employment and GDP growth rates printing slightly below forecast.

Although both reports for the second quarter of this year came in 0.1 percentage points lower than expected, they still presented a positive picture of the Eurozone economy through the first half of 2022.

Today’s final Eurozone inflation rate could affect EUR if it differs from the flash reading. Other than that, the Euro could trade according to its negative correlation with the US Dollar (USD).

US Dollar (USD) Rises as Risk Appetite Fades

The US Dollar strengthened yesterday as market sentiment soured, thereby increasing the appeal of the safe-haven ‘Greenback’.

Fairly upbeat American retail sales data also boosted USD. Although sales growth stalled in July, this was due to a drop in gasoline prices. As fuel prices fell, this freed up cash for US consumers to spend elsewhere.

Despite the minutes from the Federal Open Market Committee’s (FOMC) recent meeting striking a less hawkish tone, USD managed to hold its gains.

Today, risk appetite is likely to drive most movement in the US Dollar. This evening, two Fed officials are due to speak. If they sound more hawkish than the FOMC minutes then the ‘Greenback’ could gain ground.

Canadian Dollar (CAD) Subdued amid Thin Trading Conditions

The Canadian Dollar (CAD) struggled yesterday as a lack of Canadian data and muted oil prices left the oil-linked ‘Loonie’ without much support.

Looking ahead, movements in the oil market may continue to affect the Canadian Dollar.

Australian Dollar (AUD) Stumbles as Workforce Shrinks

The Australian Dollar (AUD) wavered lower overnight following some mixed jobs data. Although the country’s unemployment rate unexpectedly fell by 0.1 percentage points, this was largely due to a sharp drop in the labour market participation rate.

New Zealand Dollar (NZD) Falls amid Sour Sentiment

The New Zealand Dollar (NZD) also retreated in overnight trade as a downbeat market mood pressured the risk-sensitive ‘Kiwi’.

Samuel Birnie

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